Question

Does anyone have the solution to James S. Reece Case 7-1. Stern Corporation (B)*

Case 7-1 Stern Corporation (B)* * Copyright © James S. Reece. After the controller of Stern Corporation had ascer- tained the changes in accounts receivable and the al- lowance for doubtful accounts in 2010, a similar ysis was made of property, plant, and equipment and accumulated depreciation accounts. Again the controller examined the December 31, 2009, balance sheet [see Exhibit 1 of Stern Corporation (A), Case 5-1]. Also reviewed were the following company transactions that were found to be applicable to these 6. On October 1, 2010, the company sold a desk for $80. This piece of furniture was recorded on the books at a cost of $490 with an accumulated depre- ciation of $395 as of January 1, 2010. 7. Depreciation was calculated at the following rates: Buildings Factory machinery Furniture and fixtures Automotive equipment Office machines 2% 10* 10 accounts: 20 1. On January 2, 2010, one of the factory machines 10 was sold for its book value, $3,866. This machine was recorded on the books at $31,233 with accu- * Included in the factory machinery cost of $3,425,585 was a machine costing S85,000 that had been fully depreciated on December 31, 2009, and that was still in use. mulated depreciation of $27,367. 2. Tools were carried on the books at cost, and at the Questions end of each year a physical inventory was taken to determine what tools still remained. The account was written down to the extent of the decrease 1. Ina manner similar to that used in Stern Corporation (A), analyze the effect of each of these transactions on the property, plant, and equipment accounts, ac- cumulated depreciation, and any other accounts that may be involved. Prepare journal entries for these transactions. tools as ascertained by the year-end inventory. At the end of 2010, it was determined that there had been a decrease in the tool inventory amounting to $7,850. 3. On March 1, 2010, the company sold for $2,336 cash an automobile that was recorded on the books at a cost of $8,354 and had an accumulated depreci- ation of $5,180, giving a net book value of $3,174 as of January 1, 2010. In this and other cases of the sale of long-lived assets during the vear, the mulated depreciation and 2. Give the correct totals for property, plant, and equipment, and the amount of accumulated depre- ciation as of December 31, 2010, after the transac- tions affecting them had been recorded. year, depreciation increased by an amount that re- edepreciation chargeable for the months accu- expense were flected in 2010 in which the asset was held prior to the sale, items both the at rates listed in item 7 below. 4. The patent listed on the balance sheet had been pur- chased by the Stern Corporation. The cost of the patent was written off as an expense over the re- mainder of its legal life as of December 31, 2009, remaining legal life was five years. the patent's 5. On July 1, 2010, a typewriter that had cost $1,027 and had been fully depreciated on December 31, 2009, was sold for $75.

Answer 1

Answer-1:

1	Cash	3,866
	Accumulated depreciation, Factory machinery	27,367
	Factory machinery		31,233
2	Tool expense	7,850
	Tools		7,850
3(a)	Depreciation expense (8,354 × 0.20 × 1/6)	278
	Accumulated depreciation, automotive equipment		278
3(b)	Cash	2,336
	Accumulated depreciation, automotive equipment	5,458
	Loss on sale of other assets	560
	Automotive equipment		8,354
4	Patent amortization expense	11,250
	Patent		11,250
5	Cash	75
	Accumulated depreciation, office machines	1,027
	Gain on sale of other assets		75
	Office machines		1,027
6(a)	Depreciation expense (490 × 0.10 × .75)	37
	Accumulated depreciation		37
6(b)	Cash	80
	Accumulated depreciation, furniture and fixtures	432
	Furniture and fixtures		490
	Gain on sale of other assets		22
7	Depreciation expense	398,779
	Accumulated depreciation, building		48,105
	Accumulated depreciation, factory machinery		330,935
	Accumulated depreciation, furniture and fixtures		5,599
	Accumulated depreciation, automotive equipment		9,989
	Accumulated depreciation, office machines		4,151
	(Depreciation has been calculated after earlier entries have been recorded and that depreciation on factory machinery is not calculated on the $85,000 of fully depreciable assets)

Answer-2:

Net $ Land Building Factory machinery Furniture and fixtures Automotive equipment Office machines Tools Patent Total Accumulated Gross depreciation $ 186,563 2,405,259 $ 711,484 3,394,352 1,945,926 55,994 45,604 49,944 41,965 41,507 31,129 53,444 45,000 6,232,063 2,776,108 186,563 1,693,775 1,448,426 10,390 7,979 10,378 53,444 45,000 3,455,955